QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number

000-50056

MARTIN MIDSTREAM PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware

05-0527861

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

4200 Stone Road

Kilgore, Texas 75662

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (903) 983-6200

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x

No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No x

The number of the registrant’s Common Units outstanding at May 6, 2013, was 26,624,276.

Accounts and other receivables, less allowance for doubtful accounts of $2,831 and $2,805, respectively

134,013

190,652

Product exchange receivables

6,041

3,416

Inventories

71,198

95,987

Due from affiliates

38,978

13,343

Other current assets

3,823

2,777

Assets held for sale

1,251

3,578

Total current assets

255,351

314,915

Property, plant and equipment, at cost

830,385

767,344

Accumulated depreciation

(267,657

)

(256,963

)

Property, plant and equipment, net

562,728

510,381

Goodwill

19,616

19,616

Investment in unconsolidated entities

177,775

154,309

Debt issuance costs, net

17,736

10,244

Other assets, net

3,159

3,531

$

1,036,365

$

1,012,996

Liabilities and Partners’ Capital

Current installments of long-term debt and capital lease obligations

$

3,192

$

3,206

Trade and other accounts payable

115,616

140,045

Product exchange payables

20,632

12,187

Due to affiliates

5,710

3,316

Income taxes payable

2,045

10,239

Other accrued liabilities

13,674

9,489

Total current liabilities

160,869

178,482

Long-term debt and capital leases, less current maturities

520,001

474,992

Other long-term obligations

1,560

1,560

Total liabilities

682,430

655,034

Partners’ capital

353,935

357,962

Commitments and contingencies

$

1,036,365

$

1,012,996

See accompanying notes to consolidated and condensed financial statements.

2

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per unit amounts)

Three Months Ended

March 31,

2013

20121

Revenues:

Terminalling and storage *

$

28,891

$

20,186

Marine transportation *

24,980

20,862

Sulfur services

3,001

2,926

Product sales: *

Natural gas services

259,109

172,111

Sulfur services

67,384

71,626

Terminalling and storage

50,321

60,615

376,814

304,352

Total revenues

433,686

348,326

Costs and expenses:

Cost of products sold: (excluding depreciation and amortization)

Natural gas services *

248,778

167,199

Sulfur services *

52,797

54,960

Terminalling and storage

43,815

53,646

345,390

275,805

Expenses:

Operating expenses *

43,360

37,011

Selling, general and administrative *

7,030

5,771

Depreciation and amortization

11,893

9,953

Total costs and expenses

407,673

328,540

Other operating income (loss)

372

(5

)

Operating income

26,385

19,781

Other income (expense):

Equity in earnings (loss) of unconsolidated entities

(374

)

233

Interest expense

(9,058

)

(7,656

)

Debt prepayment premium

—

(251

)

Other, net

(9

)

292

Total other expense

(9,441

)

(7,382

)

Net income before taxes

16,944

12,399

Income tax expense

(307

)

(1,657

)

Income from continuing operations

16,637

10,742

Income from discontinued operations, net of income taxes

—

1,725

Net income

16,637

12,467

Less general partners' interest in net income

(333

)

(1,611

)

Less pre-acquisition income allocated to Parent

—

(1,938

)

Less income allocable to unvested restricted units

(43

)

—

Limited partners' interest in net income

$

16,261

$

8,918

See accompanying notes to consolidated and condensed financial statements.

1 Financial information for 2012 has been revised to include results attributable to the Redbird Class A interests and the Blending and Packaging Assets acquired from Cross prior to October 2, 2012. See Note 1 – General.

*Related Party Transactions Shown Below

3

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per unit amounts)

*Related Party Transactions Included Above

Three Months Ended

March 31,

2013

20121

Revenues:

Terminalling and storage

$

17,328

$

15,275

Marine transportation

6,843

4,857

Product Sales

1,209

2,190

Costs and expenses:

Cost of products sold: (excluding depreciation and amortization)

Terminalling and storage

11,961

12,649

Natural gas services

8,556

4,315

Sulfur services

4,534

4,431

Expenses:

Operating expenses

17,974

13,817

Selling, general and administrative

4,418

2,666

See accompanying notes to consolidated and condensed financial statements.

1 Financial information for 2012 has been revised to include results attributable to the Redbird Class A interests and the Blending and Packaging Assets acquired from Cross prior to October 2, 2012. See Note 1 – General.

4

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per unit amounts)

Three Months Ended

March 31,

2013

20121

Allocation of net income attributable to:

Limited partner interest:

Continuing operations

$

16,261

$

7,457

Discontinued operations

—

1,461

$

16,261

$

8,918

General partner interest:

Continuing operations

$

333

$

1,347

Discontinued operations

—

264

$

333

$

1,611

Net income attributable to limited partners:

Basic:

Continuing operations

$

0.61

$

0.33

Discontinued operations

—

0.06

$

0.61

$

0.39

Weighted average limited partner units - basic

26,561

22,576

Diluted:

Continuing operations

$

0.61

$

0.33

Discontinued operations

—

0.06

$

0.61

$

0.39

Weighted average limited partner units - diluted

26,569

22,580

See accompanying notes to consolidated and condensed financial statements.

1 Financial information for 2012 has been revised to include results attributable to the Redbird Class A interests and the Blending and Packaging Assets acquired from Cross prior to October 2, 2012. See Note 1 – General.

5

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

Three Months Ended

March 31,

2013

20121

Net income

$

16,637

$

12,467

Other comprehensive income adjustments:

Changes in fair values of commodity cash flow hedges

—

122

Commodity cash flow hedging losses reclassified to earnings

—

(186

)

Other comprehensive income

—

(64

)

Comprehensive income

$

16,637

$

12,403

See accompanying notes to consolidated and condensed financial statements.

1 Financial information for 2012 has been revised to include results attributable to the Redbird Class A interests and the Blending and Packaging Assets acquired from Cross prior to October 2, 2012. See Note 1 – General.

6

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED AND CONDENSED STATEMENTS OF CAPITAL

(Unaudited)

(Dollars in thousands)

Partners’ Capital

Parent Net Investment1

Common Limited

Subordinated Limited

General Partner

Accumulated

Other

Comprehensive

Income

Units

Amount

Units

Amount

Amount

(Loss)

Total

Balances - January 1, 2012

$

51,571

20,471,776

$

279,562

—

$

—

$

5,428

$

626

$

337,187

Net income

1,938

—

9,079

—

—

1,450

—

12,467

Follow-on public offering

—

2,645,000

91,377

—

—

—

—

91,377

General partner contribution

—

—

—

—

—

1,951

—

1,951

Cash distributions

—

—

(17,626

)

—

—

(1,818

)

—

(19,444

)

Unit-based compensation

—

—

56

—

—

—

—

56

Adjustment in fair value of derivatives

—

—

—

—

—

—

(64

)

(64

)

Balances - March 31, 2012

$

53,509

23,116,776

$

362,448

—

$

—

$

7,011

$

562

$

423,530

Balances - January 1, 2013

$

—

26,566,776

$

349,490

—

$

—

$

8,472

$

—

$

357,962

Net income

—

—

16,304

—

—

333

—

16,637

Issuance of restricted units

—

57,750

—

—

—

—

—

—

General partner contribution

—

—

—

—

—

37

—

37

Cash distributions

—

—

(20,501

)

—

—

(456

)

—

(20,957

)

Unit-based compensation

—

—

256

—

—

—

—

256

Balances - March 31, 2013

$

—

26,624,526

$

345,549

—

$

—

$

8,386

$

—

$

353,935

See accompanying notes to consolidated and condensed financial statements.

1 Financial information for 2012 has been revised to include results attributable to the Redbird Class A interests and the Blending and Packaging Assets acquired from Cross prior to October 2, 2012. See Note 1 – General.

7

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

Three Months Ended

March 31,

2013

20121

Cash flows from operating activities:

Net income

$

16,637

$

12,467

Less: Income from discontinued operations

—

(1,725

)

Net income from continuing operations

16,637

10,742

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

11,893

9,953

Amortization of deferred debt issuance costs

1,269

690

Amortization of debt discount

76

87

(Gain) loss on sale of property, plant and equipment

(372

)

6

Equity in (earnings) loss of unconsolidated entities

374

(233

)

Unit-based compensation

256

56

Other

6

—

Change in current assets and liabilities, excluding effects of acquisitions and dispositions:

Accounts and other receivables

56,639

3,920

Product exchange receivables

(2,625

)

8,433

Inventories

25,494

(12,323

)

Due from affiliates

(25,635

)

(5,142

)

Other current assets

(1,046

)

(1,091

)

Trade and other accounts payable

(24,429

)

(9,507

)

Product exchange payables

8,445

(6,730

)

Due to affiliates

2,394

(2,455

)

Income taxes payable

484

262

Other accrued liabilities

4,185

2,530

Change in other non-current assets and liabilities

26

52

Net cash provided by (used in) continuing operating activities

74,071

(750

)

Net cash provided by (used in) discontinued operating activities

(8,678

)

855

Net cash provided by operating activities

65,393

105

Cash flows from investing activities:

Payments for property, plant and equipment

(14,715

)

(31,035

)

Acquisitions

(50,801

)

—

Payments for plant turnaround costs

—

(305

)

Proceeds from sale of property, plant and equipment

3,610

20

Return of investments from unconsolidated entities

525

1,072

Contributions to unconsolidated entities

(24,365

)

(7,657

)

Net cash used in continuing investing activities

(85,746

)

(37,905

)

Net cash used in discontinued investing activities

—

(1,161

)

Net cash used in investing activities

(85,746

)

(39,066

)

Cash flows from financing activities:

Payments of long-term debt

(373,000

)

(146,000

)

Payments of notes payable and capital lease obligations

(81

)

(6,407

)

Proceeds from long-term debt

418,000

126,000

Net proceeds from follow on offering

—

91,377

General partner contribution

37

1,951

Payment of debt issuance costs

(8,761

)

—

Cash distributions paid

(20,957

)

(19,444

)

Net cash provided by financing activities

15,238

47,477

Net increase (decrease) in cash

(5,115

)

8,516

Cash at beginning of period

5,162

266

Cash at end of period

$

47

$

8,782

See accompanying notes to consolidated and condensed financial statements.

1 Financial information for 2012 has been revised to include results attributable to the Redbird Class A interests and the Blending and Packaging Assets acquired from Cross prior to October 2, 2012. See Note 1 – General.

8

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

(1)

General

Martin Midstream Partners L.P. (the “Partnership”) is a publicly traded limited partnership with a diverse set of operations focused primarily in the United States Gulf Coast region. Its four primary business lines include: terminalling and storage services for petroleum products and by-products including the refining, blending, and packaging of finished lubricants; natural gas services, including liquids distribution services and natural gas storage; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and marine transportation services for petroleum products and by-products.

The Partnership’s unaudited consolidated and condensed financial statements have been prepared in accordance with the requirements of Form 10-Q and United States generally accepted accounting principles for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by generally accepted accounting principles for annual audited financial statements of the type contained in the Partnership’s annual reports on Form 10-K. In the opinion of the management of the Partnership’s general partner, all adjustments and elimination of significant intercompany balances necessary for a fair presentation of the Partnership’s results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for such interim periods are not necessarily indicative of the results of operations for the full year. These financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2013, as amended by Amendment No. 1 on Form 10-K/A for the year ended December 31, 2012 filed on March 28, 2013.

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates.

As discussed in Note 4, on July 31, 2012, the Partnership completed the sale of its East Texas and Northwest Louisiana natural gas gathering and processing assets owned by Prism Gas Systems I, L.P. ("Prism Gas"), a wholly-owned subsidiary of the Partnership. These assets, along with additional gathering and processing assets discussed in Note 4, are collectively referred to as the "Prism Assets." The Partnership has retrospectively adjusted its prior period consolidated financial statements to comparably classify the amounts related to the operations and cash flows of the Prism Assets as discontinued operations.

On October 2, 2012, the Partnership, which owned 10.74% of the Class A interests and 100% of the Class B interests, acquired all of the remaining Class A interests in Redbird Gas Storage LLC ("Redbird") from Martin Underground Storage, Inc., a subsidiary of Martin Resource Management Corporation (“Martin Resource Management” or “Parent”). In 2011, the Partnership and Martin Resource Management formed Redbird, a natural gas storage joint venture to invest in Cardinal Gas Storage Partners LLC (“Cardinal”). Cardinal is a joint venture between Redbird and Energy Capital Partners (“ECP”) that is focused on the development, construction, operation and management of natural gas storage facilities across northern Louisiana and Mississippi.

The acquisitions of the Redbird Class A interests and the Blending and Packaging Assets were considered a transfer of net assets between entities under common control. As a result, the acquisitions of the Redbird Class A interests and the Blending and Packaging Assets are recorded at amounts based on the historical carrying value of these assets at October 2, 2012, and the Partnership is required to update its historical financial statements to include the activities of the Redbird Class A interests and the Blending and Packaging Assets as of the date of common control. The Partnership’s accompanying historical financial statements have been retrospectively updated to reflect the effects on financial position, cash flows and results of operations attributable to the activities of the Redbird Class A interests and the Blending and Packaging Assets as if the Partnership owned these assets for the periods presented. Net income attributable to the Redbird Class A interests and the activities of the Blending and Packaging Assets for periods prior to the Partnership’s acquisition of the assets is not allocated to the general and limited partners for purposes of calculating net income per limited partner unit. See Note 10.

9

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

(2)

New Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) amended the provisions of Accounting Standards Codification (“ASC”) 220 related to accumulated other comprehensive income, which does not change the current requirements for reporting net income or other comprehensive income in financial statements. The standard requires a company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The company is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under United States Generally Accepted Accounting Principles ("U.S. GAAP") to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This amended guidance was adopted by the Partnership effective January 1, 2013. As this new guidance only requires enhanced disclosure, adoption did not impact the Partnership's financial position or results of operations.

(3)

Acquisitions

NGL Marine Equipment Purchase

On February 28, 2013, the Partnership purchased from affiliates of Florida Marine Transporters, Inc. six liquefied petroleum gas pressure barges and two commercial push boats for approximately $50,801, of which the commercial push boats totaling $8,201 were allocated to property, plant, and equipment in our Marine Transportation segment and the six pressure barges totaling $42,600 were allocated to property, plant, and equipment in our Natural Gas Services segment. The purchase was funded with borrowings under the Partnership's revolving credit facility.

Talen's Marine & Fuel LLC

On December 31, 2012, the Partnership acquired all of the outstanding membership interests in Talen's Marine & Fuel LLC (“Talen's”) from Quintana Energy Partners, L.P. for $103,368, subject to certain post-closing adjustments, including the assumption of a note payable in the amount of $2,971. Through this acquisition, the Partnership acquired certain terminalling facilities and other terminalling related assets located along the Texas and Louisiana gulf coast. This transaction was funded by borrowings under the Partnership's revolving credit facility. Simultaneous with the acquisition, the Partnership sold certain working capital-related assets and a customer relationship intangible asset to Martin Energy Services LLC (“MES”), a wholly-owned subsidiary of Martin Resource Management for $56,000. Due to the Talen's acquisition, MES entered into various service agreements with Talen's pursuant to which the Partnership provides certain terminalling and marine services to MES. The excess carrying value of the assets over the purchase price paid by Martin Resource Management at the sales date was $4,268 and was recorded as an adjustment to partners' capital. The remaining net assets retained by the Partnership were recorded at fair value of $43,100 in the following preliminary purchase price allocation:

Purchase price paid to acquire Talen's

$

103,368

Less proceeds received from Martin Resource Management for assets sold (described above)

(56,000

)

Less excess of carrying value of assets sold to Martin Resource Management over the purchase price paid by Martin Resource Management

(4,268

)

Total

$

43,100

10

Cash

$

5,096

Accounts and other receivables, net

2,682

Assets held for sale

3,578

Other current assets

1,547

Property, plant and equipment

23,838

Goodwill

11,279

Notes payable

(2,971

)

Current liabilities

(1,480

)

Other liabilities

(469

)

Total

$

43,100

The Partnership has not obtained all of the information necessary to finalize the purchase price allocation. The final purchase price allocation is expected to be completed during 2013.

Lubricant Blending and Packaging Assets

On October 2, 2012, the Partnership purchased the Blending and Packaging Assets from Cross. The consideration consisted of $121,767 in cash at closing, plus a final net working capital adjustment of $907 paid in October of 2012. The purchase was funded by borrowings under the Partnership's revolving credit facility. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of the Blending and Packaging assets was recorded at the historical carrying value of the assets at the acquisition date, which were as follows:

Accounts and other receivables, net

$

20,599

Inventory

18,730

Other current assets

769

Property, plant and equipment, net

24,692

Current liabilities

(2,424

)

Total

$

62,366

The excess purchase price over the historical carrying value of the assets at the acquisition date was $60,308 and was recorded as an adjustment to partners' capital.

Redbird Class A Interests

On October 2, 2012, the Partnership acquired from Martin Underground Storage, Inc., a subsidiary of Martin Resource Management, all of the remaining Class A interests in Redbird for $150,000 in cash. The Partnership began making Class A investments in Redbird during the fourth quarter of 2011. Prior to the transaction, the Partnership owned a 10.74% Class A interest and a 100% Class B interest in Redbird. This transaction was funded by borrowings under the Partnership's revolving credit facility. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of these interests was recorded at the historical carrying value of the interests at the acquisition date. The Partnership recorded an investment in consolidated entities of $68,233 and the excess of the purchase price over the carrying value of the Class A interests of $81,767 was recorded as an adjustment to partners' capital.

(4)

Discontinued operations and divestitures

On July 31, 2012, the Partnership completed the sale of its East Texas and Northwest Louisiana natural gas gathering and processing assets owned by Prism Gas and other natural gas gathering and processing assets also owned by the Partnership to a subsidiary of CenterPoint Energy Inc. (NYSE: CNP) (“CenterPoint”). The Partnership received net cash proceeds from the sale of $273,269. The asset sale includes the Partnership’s 50% operating interest in Waskom Gas Processing Company (“Waskom”). A subsidiary of CenterPoint owned the other 50% percent interest.

11

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

Additionally, on September 18, 2012, the Partnership completed the sale of its interest in Matagorda Offshore Gathering System (“Matagorda”) and Panther Interstate Pipeline Energy LLC (“PIPE”) to a private investor group for $1,530.

The Partnership classified the results of operations of the Prism Assets, which were previously presented as a component of the Natural Gas Services segment, as discontinued operations in the consolidated and condensed statements of operations for all periods presented.

The Prism Assets’ operating results, which are included within income from discontinued operations, were as follows:

Three Months Ended March 31,

2013

2012

Total revenues from third parties1

$

—

$

28,902

Total costs and expenses, excluding depreciation and amortization

—

(28,426

)

Depreciation and amortization

—

(1,394

)

Other operating income

—

10

Equity in earnings of Waskom, Matagorda, and PIPE

—

2,465

Income from discontinued operations before income taxes

—

1,557

Income tax (benefit)

—

(168

)

Income from discontinued operations, net of income taxes

$

—

$

1,725

1 Total revenues from third parties excludes intercompany revenues of $0 and $13,433 for the three months ended March 31, 2013 and 2012, respectively.

(5)

Inventories

Components of inventories at March 31, 2013 and December 31, 2012 were as follows:

March 31, 2013

December 31, 2012

Natural gas liquids

$

7,431

$

33,610

Sulfur

22,168

14,892

Sulfur based products

13,159

17,824

Lubricants

25,281

27,366

Other

3,159

2,295

$

71,198

$

95,987

(6)

Investments in Unconsolidated Entities and Joint Ventures

As discussed in detail in Note 4, the Partnership sold its 50% interests in Waskom, Matagorda, and PIPE in 2012. The equity in earnings associated with these investments during the period owned is recorded in income from discontinued operations for the three months ended March 31, 2012.

On May 1, 2008, certain assets and liabilities were contributed to acquire a 50% ownership interest in Cardinal. In conjunction with this transaction, ECP contributed cash for a 50% ownership interest in Cardinal.

The initial carrying amount of the investment in Cardinal was less than the contributed underlying net assets. Of the basis difference, $1,250 relates to differences in the carrying value of fixed assets contributed as compared to amounts recorded by Cardinal, and is being amortized over 40 years, the approximate useful life of the underlying assets. Such amortization amounted to $8 for each of the three months ended March 31, 2013 and 2012. The remaining basis difference is a permanent difference that will be realized upon sale of the investment in Cardinal.

12

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

On May 24, 2011, Redbird was formed to hold membership interests in Cardinal. On May 27, 2011, initial contributions by Martin Resource Management, which consisted of all its membership interests in Cardinal for 100% of the Class A interests in Redbird. Simultaneously, the Partnership acquired 100% of the Class B interests in Redbird for approximately $59,319. Concurrent with the closing of this transaction, Redbird contributed the cash to Cardinal which used the cash, along with a contribution from ECP, to acquire all of the outstanding equity interests in Monroe Gas Storage Company, LLC as well as an option on development rights to an adjacent depleted reservoir facility. As discussed in Note 3, on October 2, 2012, the Partnership, acquired the remaining Class A interests in Redbird from Martin Resource Management. As this acquisition is considered a transfer of net assets between entities under common control, the acquisition is recorded at the historical carrying value of these assets at that date. The Partnership is required to retrospectively update its historical financial statements to include the activities of the Class A interests in Redbird as of the date of common control. The Partnership's accompanying historical financial statements for the three months ended March 31, 2012 have been retrospectively updated to reflect the effects on financial position, cash flows and results of operations attributable to the Redbird Class A interests as if the Partnership owned these assets for this period.

At March 31, 2013, Redbird owned an unconsolidated 41.89% interest in Cardinal. Redbird utilized the investments by the Partnership to invest in Cardinal to fund projects for natural gas storage facilities.

At March 31, 2013, the Partnership owned an unconsolidated 50% interest in Caliber Gathering, LLC (“Caliber”).

During March 2013, the Partnership acquired 100% of the preferred interests in Martin Energy Trading LLC ("MET"), a subsidiary of Martin Resource Management, for $15,000.

These investments are accounted for by the equity method.

The following tables summarize the components of the investment in unconsolidated entities on the Partnership’s consolidated and condensed balance sheets and the components of equity in earnings of unconsolidated entities included in the Partnership’s consolidated and condensed statements of operations:

March 31, 2013

December 31, 2012

Investment in Redbird

$

162,373

$

153,749

Investment in MET

15,000

—

Investment in Caliber

402

560

Total Investment in unconsolidated entities

$

177,775

$

154,309

Three Months Ended March 31,

2013

2012

Equity in earnings of Waskom1

$

—

$

2,325

Equity in earnings of PIPE1

—

(48

)

Equity in earnings of Matagorda1

—

188

Equity in earnings of discontinued operations

—

2,465

Equity in earnings of Redbird

(216

)

233

Equity in earnings of Caliber

(158

)

—

Equity in earnings of unconsolidated entities

(374

)

233

Total equity in earnings of unconsolidated entities

$

(374

)

$

2,698

¹ For the three months ended March 31, 2012, the financial information for Waskom, Matagorda, and PIPE is included in the consolidated and condensed statement of operations and cash flows as discontinued operations.

As of March 31, 2013 and December 31, 2012, the Partnership’s interest in cash of the unconsolidated equity-method investees was $1,900 and $1,265, respectively.

(7)

Derivative Instruments and Hedging Activities

The Partnership’s results of operations are materially impacted by changes in crude oil, natural gas and NGL prices and interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges.

(a) Commodity Derivative Instruments

The Partnership is not currently exposed to market risks associated with commodity prices but from time to time has used derivatives to manage the risk of commodity price fluctuation. The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with potential commodity risk exposure. These hedging arrangements have been in the form of swaps for crude oil, natural gas and natural gasoline. In addition, the Partnership has focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction.

Due to the sale of the Prism Assets during 2012, the Partnership terminated and settled all of its commodity derivative instruments during the second quarter of 2012. For the three months ended March 31, 2012, changes in the fair value of the Partnership’s derivative contracts were recorded in both earnings (income from discontinued operations) and in AOCI as a component of partners’ capital.

(b) Impact of Commodity Cash Flow Hedges

Crude Oil. For the three months ended March 31, 2012, net gains and losses on swap hedge contracts decreased crude revenue (included in income from discontinued operations) by $86.

Natural Gas. For the three months ended March 31, 2012, net gains and losses on swap hedge contracts increased gas revenue (included in income from discontinued operations) by $204.

Natural Gas Liquids. For the three months ended March 31, 2012, net gains and losses on swap hedge contracts decreased liquids revenue (included in income from discontinued operations) by $55.

14

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

For information regarding fair value amounts and gains and losses on commodity derivative instruments and related hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items” within this Note.

(c) Impact of Interest Rate Derivative Instruments

The Partnership is exposed to market risks associated with interest rates. From time to time, the Partnership enters into interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate debt and term loan credit facilities.

Tabular Presentation of Gains and Losses on Derivative Instruments and Related Hedged Items

Effect of Derivative Instruments on the Consolidated and Condensed Statement of Operations For the Three Months Ended March 31, 2013 and 2012

Effective Portion

Ineffective Portion and Amount Excluded from Effectiveness Testing

Amount of Gain or (Loss) Recognized in OCI on Derivatives

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income

Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income

Location of Gain or (Loss) Recognized in Income on Derivatives

Amount of Gain or (Loss) Recognized in Income on Derivatives

2013

2012

2013

2012

2013

2012

Derivatives designated as hedging instruments:

Commodity contracts

$

—

$

126

Income from Discontinued Operations

$

—

$

186

Income from Discontinued Operations

$

—

$

4

Total derivatives designated as hedging instruments

$

—

$

126

$

—

$

186

$

—

$

4

Location of Gain or (Loss) Recognized in Income on Derivatives

Amount of Gain or (Loss) Recognized in Income on Derivatives

2013

2012

Derivatives not designated as hedging instruments:

Commodity contracts

Income from Discontinued Operations

$

—

$

(127

)

Total derivatives not designated as hedging instruments

$

—

$

(127

)

(8)

Fair Value Measurements

The Partnership follows the provisions of ASC 820 related to fair value measurements and disclosures, which established a framework for measuring fair value and expanded disclosures about fair value measurements. The adoption of this guidance had no impact on the Partnership’s financial position or results of operations.

ASC 820 applies to all assets and liabilities that are being measured and reported on a fair value basis. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value of each asset and liability carried at fair value into one of the following categories:

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

15

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 at March 31, 2013 and December 31, 2012:

Fair Value Measurements at Reporting Date Using

Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Observable Inputs

Significant

Unobservable

Inputs

Description

March 31, 2013

(Level 1)

(Level 2)

(Level 3)

Liabilities

2018 Senior notes

$

192,173

$

—

$

192,173

$

—

2021 Senior notes

254,482

—

254,482

$

—

Total liabilities

$

446,655

$

—

$

446,655

$

—

Fair Value Measurements at Reporting Date Using

Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Observable Inputs

Significant

Unobservable

Inputs

Description

December 31, 2012

(Level 1)

(Level 2)

(Level 3)

Liabilities

2018 Senior notes

$

187,066

$

—

$

187,066

$

—

Total liabilities

$

187,066

$

—

$

187,066

$

—

FASB ASC 825-10-65, Disclosures about Fair Value of Financial Instruments, requires that the Partnership disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for the Partnership’s financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

•

Accounts and other receivables, trade and other accounts payable, other accrued liabilities, income taxes payable and due from/to affiliates: The carrying amounts approximate fair value due to the short maturity and highly liquid nature of these instruments, and as such these have been excluded from the table above.

•

Long-term debt including current portion: The carrying amount of the revolving loan facility approximates fair value due to the debt having a variable interest rate and is in Level 2. The estimated fair value of the Senior Notes is based on market prices of similar debt. The carrying amount of the Partnership's note payable to bank as of March 31, 2013 is not deemed to be significantly different than the fair value.

(9)

Long-Term Debt and Capital Leases

At March 31, 2013 and December 31, 2012, long-term debt consisted of the following:

16

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

March 31, 2013

December 31,

2012

$600,000 Revolving loan facility at variable interest rate (4.75%* weighted average at March 31, 2013), due March 2018 secured by substantially all of the Partnership’s assets, including, without limitation, inventory, accounts receivable, vessels, equipment, fixed assets and the interests in the Partnership’s operating subsidiaries and equity method investees

$

91,000

$

296,000

$200,000** Senior notes, 8.875% interest, net of unamortized discount of $1,535 and $1,612, respectively, issued March 2010 and due April 2018, unsecured

173,465

173,388

$250,000 Senior notes, 7.250% interest, issued February 2013 and due February 2021, unsecured

Long-term debt and capital lease obligations, net of current installments

$

520,001

$

474,992

* Interest rate fluctuates based on the LIBOR rate plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an applicable margin or the base prime rate plus an applicable margin. The applicable margin for revolving loans that are LIBOR loans ranges from 2.00% to 3.00% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.00% to 2.00%. The applicable margin for existing LIBOR borrowings is 2.50%. Effective April 1, 2013, the applicable margin for existing LIBOR borrowings remained at 2.50%. Effective July 1, 2013, the applicable margin for existing LIBOR borrowings will remain at 2.50%. As of May 6, 2013, our weighted average interest rate on our revolving loan facility is 3.02%.

** Pursuant to the Indenture under which the Senior Notes due in 2018 were issued, the Partnership has the option to redeem up to 35% of the aggregate principal amount at a redemption price of 108.875% of the principal amount, plus accrued and unpaid interest with the proceeds of certain equity offerings. On April 24, 2012, the Partnership notified the Trustee of its intention to exercise a partial redemption of the Partnership’s Senior Notes pursuant to the Indenture. On May 24, 2012, the Partnership redeemed $25,000 of the Senior Notes from various holders using proceeds of the Partnership’s January 2012 follow-on equity offering, which in the interim were used to pay down amounts outstanding under the Partnership’s revolving credit facility.

Effective March 28, 2013, the Partnership increased the maximum amount of borrowings and letters of credit available under the Credit Facility from $400,000 to $600,000 and extended the term from April 2016 to March 2018.

On February 11, 2013, the Partnership completed a private placement of $250,000 in aggregate principal amount of 7.250% senior unsecured notes due 2021 to qualified institutional buyers under Rule 144A. The Partnership registered the senior unsecured notes on Form S-4 filed with the SEC on April 10, 2013.

The Partnership paid cash interest in the amount of $2,217 and $2,408 for the three months ended March 31, 2013 and 2012, respectively. Capitalized interest was $180 and $353 for the three months ended March 31, 2013 and 2012, respectively.

(10)

Partners' Capital

As of March 31, 2013, partners’ capital consists of 26,624,526 common limited partner units, representing a 98% partnership interest and a 2% general partner interest. Martin Resource Management, through subsidiaries, owned 5,093,267 of the Partnership's common limited partnership units representing approximately 19.1% of the Partnership's outstanding common limited partnership units and a 2% general partnership interest.

17

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

The partnership agreement of the Partnership contains specific provisions for the allocation of net income and losses to each of the partners for purposes of maintaining their respective partner capital accounts.

Issuance of Common Units

On November 26, 2012, the Partnership completed a public offering of 3,450,000 common units at a price of $31.16 per common unit, before the payment of underwriters' discounts, commissions and offering expenses (per unit value is in dollars, not thousands). Total proceeds from the sale of the 3,450,000 common units, net of underwriters' discounts, commissions and offering expenses were $102,809. The Partnership's general partner contributed $2,194 in cash to the Partnership in conjunction with the issuance in order to maintain its 2% general partner interest in the Partnership. All of the net proceeds were used to reduce outstanding indebtedness of the Partnership.

On January 25, 2012, the Partnership completed a public offering of 2,645,000 common units at a price of $36.15 per common unit, before the payment of underwriters’ discounts, commissions and offering expenses (per unit value is in dollars, not thousands). Total proceeds from the sale of the 2,645,000 common units, net of underwriters’ discounts, commissions and offering expenses were $91,361. The Partnership’s general partner contributed $1,951 in cash to the Partnership in conjunction with the issuance in order to maintain its 2% general partner interest in the Partnership. All of the net proceeds were used to reduce outstanding indebtedness of the Partnership.

Incentive Distribution Rights

The Partnership’s general partner, Martin Midstream GP LLC, holds a 2% general partner interest and certain incentive distribution rights (“IDRs”) in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the partnership agreement of the Partnership (the “Partnership Agreement”), and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership Agreement. On October 2, 2012, the Partnership Agreement was amended to provide that the General Partner shall forego the next $18,000 in incentive distributions that it would otherwise be entitled to receive. No incentive distributions were allocated to the general partner from July 1, 2012 through March 31, 2013, which would have been payable to the general partner on November 14, 2012 for the third quarter distribution and February 14, 2013 for the fourth quarter distribution.

The target distribution levels entitle the general partner to receive 2% of quarterly cash distributions up to $0.55 per unit, 15% of quarterly cash distributions in excess of $0.55 per unit until all unitholders have received $0.625 per unit, 25% of quarterly cash distributions in excess of $0.625 per unit until all unitholders have received $0.75 per unit and 50% of quarterly cash distributions in excess of $0.75 per unit.

For the three months ended March 31, 2013 and 2012, the general partner received $0 and $1,429, respectively, in incentive distributions. As of March 31, 2013, the amount of incentive distributions the general partner has foregone is $3,432, resulting in an amount remaining of $14,568.

Distributions of Available Cash

The Partnership distributes all of its Available Cash (as defined in the Partnership Agreement) within 45 days after the end of each quarter to unitholders of record and to the general partner. Available Cash is generally defined as all cash and cash equivalents of the Partnership on hand at the end of each quarter less the amount of cash reserves its general partner determines in its reasonable discretion is necessary or appropriate to: (i) provide for the proper conduct of the Partnership’s business; (ii) comply with applicable law, any debt instruments or other agreements; or (iii) provide funds for distributions to unitholders and the general partner for any one or more of the next four quarters, plus all cash on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter.

Net Income per Unit

The Partnership follows the provisions of the FASB ASC 260-10 related to earnings per share, which addresses the application of the two-class method in determining income per unit for master limited partnerships having multiple classes of

18

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

securities that may participate in partnership distributions accounted for as equity distributions. Undistributed earnings are allocated to the general partner and limited partners utilizing the contractual terms of the Partnership Agreement. Distributions to the general partner pursuant to the IDRs are limited to available cash that will be distributed as defined in the Partnership Agreement. Accordingly, the Partnership does not allocate undistributed earnings to the general partner for the IDRs because the general partner's share of available cash is the maximum amount that the general partner would be contractually entitled to receive if all earnings for the period were distributed. When current period distributions are in excess of earnings, the excess distributions for the period are to be allocated to the general partner and limited partners based on their respective sharing of losses specified in the Partnership Agreement. Additionally, as required under FASB ASC 260-10-45-61A, unvested share-based payments that entitle employees to receive non-forfeitable distributions are considered participating securities, as defined in FASB ASC 260-10-20, for earnings per unit calculations.

For purposes of computing diluted net income per unit, the Partnership uses the more dilutive of the two-class and if-converted methods. Under the if-converted method, the weighted-average number of subordinated units outstanding for the period is added to the weighted-average number of common units outstanding for purposes of computing basic net income per unit and the resulting amount is compared to the diluted net income per unit computed using the two-class method. The following is a reconciliation of net income from continuing operations and net income from discontinued operations allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit:

Three Months Ended March 31,

2013

2012

Continuing operations:

Net income attributable to Martin Midstream Partners L.P.

$

16,637

$

10,742

Less pre-acquisition income (loss) allocated to Parent

—

1,938

Less general partner’s interest in net income:

Distributions payable on behalf of IDRs

—

1,195

Distributions payable on behalf of general partner interest

456

325

Distributions payable to the general partner interest in excess of earnings allocable to the general partner interest

(123

)

(173

)

Less income allocable to unvested restricted units

43

—

Limited partners’ interest in net income

$

16,261

$

7,457

Three Months Ended March 31,

2013

2012

Discontinued operations:

Net income attributable to Martin Midstream Partners L.P.

$

—

$

1,725

Less general partner’s interest in net income:

Distributions payable on behalf of IDRs

—

234

Distributions payable on behalf of general partner interest

—

64

Distributions payable to the general partner interest in excess of earnings allocable to the general partner interest

—

(34

)

Limited partners’ interest in net income

$

—

$

1,461

The Partnership allocates the General Partner's share of earnings between continuing and discontinued operations as a proportion of net income from continuing and discontinued operations to total net income. The allocation is done at each period end on an annual basis, resulting in each quarter representing the difference between year to date of the current quarter and year to date as of the previous quarter.

The weighted average units outstanding for basic net income per unit were 26,560,654 and 22,576,404 for the three months ended March 31, 2013 and 2012, respectively. For diluted net income per unit, the weighted average units outstanding

19

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

were increased by 8,756 and 3,504 for the three months ended March 31, 2013 and 2012, respectively, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan.

(11)

Related Party Transactions

As of March 31, 2013, Martin Resource Management owns 5,093,267 of the Partnership’s common units representing approximately 19.1% of the Partnership’s outstanding limited partnership units. The Partnership’s general partner is a wholly-owned subsidiary of Martin Resource Management. The Partnership’s general partner owns a 2.0% general partner interest in the Partnership and the Partnership’s IDRs. The Partnership’s general partner’s ability, as general partner, to manage and operate the Partnership, and Martin Resource Management’s ownership as of March 31, 2013, of approximately 19.1% of the Partnership’s outstanding limited partnership units, effectively gives Martin Resource Management the ability to veto some of the Partnership’s actions and to control the Partnership’s management.

The following is a description of the Partnership’s material related party transactions:

Omnibus Agreement

Omnibus Agreement. The Partnership and its general partner are parties to an omnibus agreement dated November 1, 2002, with Martin Resource Management (the "Omnibus Agreement") that governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services by Martin Resource Management and the Partnership’s use of certain of Martin Resource Management’s trade names and trademarks. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management.

Non-Competition Provisions. Martin Resource Management has agreed for so long as it controls the general partner of the Partnership, not to engage in the business of:

•

providing terminalling and storage services for petroleum products and by-products including the refining, blending and packaging of finished lubricants;

any business that Martin Resource Management acquires or constructs that has a fair market value of less than $5,000;

•

any business that Martin Resource Management acquires or constructs that has a fair market value of $5,000 or more if the Partnership has been offered the opportunity to purchase the business for fair market value and the Partnership declines to do so with the concurrence of the conflicts committee; and

•

any business that Martin Resource Management acquires or constructs where a portion of such business includes a restricted business and the fair market value of the restricted business is $5,000 or more and represents less than 20% of the aggregate value of the entire business to be acquired or constructed; provided that, following completion of the acquisition or construction, the Partnership will be provided the opportunity to purchase the restricted business.

Services. Under the Omnibus Agreement, Martin Resource Management provides the Partnership with corporate staff, support services, and administrative services necessary to operate the Partnership’s business. The Omnibus Agreement requires the Partnership to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on the Partnership’s behalf or in connection with the operation of the Partnership’s business. There is no monetary limitation on the amount the Partnership is required to reimburse Martin Resource Management for direct expenses. In addition to the direct expenses, under the Omnibus Agreement, the Partnership is required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses.

Effective October 1, 2012, through December 31, 2013, the Conflicts Committee of the board of directors of the general partner of the Partnership (the “Conflicts Committee”) approved an annual reimbursement amount for indirect expenses of $10,622. The Partnership reimbursed Martin Resource Management for $2,657 and $1,646 of indirect expenses for the three months ended March 31, 2013 and 2012, respectively. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.

These indirect expenses are intended to cover the centralized corporate functions Martin Resource Management provides for the Partnership, such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions the Partnership shares with Martin Resource Management retained businesses. The provisions of the Omnibus Agreement regarding Martin Resource Management’s services will terminate if Martin Resource Management ceases to control the general partner of the Partnership.

Related Party Transactions. The Omnibus Agreement prohibits the Partnership from entering into any material agreement with Martin Resource Management without the prior approval of the conflicts committee of the Partnership's general partner. For purposes of the Omnibus Agreement, the term material agreements means any agreement between the Partnership and Martin Resource Management that requires aggregate annual payments in excess of then-applicable agreed upon reimbursable amount of indirect general and administrative expenses. Please read “Services” above.

21

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

License Provisions. Under the Omnibus Agreement, Martin Resource Management has granted the Partnership a nontransferable, nonexclusive, royalty-free right and license to use certain of its trade names and marks, as well as the trade names and marks used by some of its affiliates.

Amendment and Termination. The Omnibus Agreement may be amended by written agreement of the parties; provided, however, that it may not be amended without the approval of the Conflicts Committee of the Partnership’s general partner if such amendment would adversely affect the unitholders. The Omnibus Agreement was first amended on November 25, 2009, to permit the Partnership to provide refining services to Martin Resource Management. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management. Such amendments were approved by the Conflicts Committee of the Partnership’s general partner. The Omnibus Agreement, other than the indemnification provisions and the provisions limiting the amount for which the Partnership will reimburse Martin Resource Management for general and administrative services performed on its behalf, will terminate if the Partnership is no longer an affiliate of Martin Resource Management.

Motor Carrier Agreement

Motor Carrier Agreement. The Partnership is a party to a motor carrier agreement effective January 1, 2006 as amended, with Martin Transport, Inc., a wholly owned subsidiary of Martin Resource Management through which Martin Transport, Inc. operates its land transportation operations. Under the agreement, Martin Transport, Inc. agreed to transport the Partnership's NGL's as well as other liquid products.

Term and Pricing. The agreement has an initial term that expired in December 2007 but automatically renews for consecutive one year periods unless either party terminates the agreement by giving written notice to the other party at least 30 days prior to the expiration of the then-applicable term. The Partnership has the right to terminate this agreement at any time by providing 90 days prior notice. These rates are subject to any adjustments which are mutually agreed or in accordance with a price index. Additionally, during the term of the agreement, shipping charges are also subject to fuel surcharges determined on a weekly basis in accordance with the U.S. Department of Energy’s national diesel price list.

Marine Agreements

Marine Transportation Agreement. The Partnership is a party to a marine transportation agreement effective January 1, 2006, which was amended January 1, 2007, under which the Partnership provides marine transportation services to Martin Resource Management on a spot-contract basis at applicable market rates. Effective each January 1, this agreement automatically renews for consecutive one year periods unless either party terminates the agreement by giving written notice to the other party at least 60 days prior to the expiration of the then applicable term. The fees the Partnership charges Martin Resource Management are based on applicable market rates.

Marine Fuel. The Partnership is a party to an agreement with Martin Resource Management dated November 1, 2002 under which Martin Resource Management provides the Partnership with marine fuel from its locations in the Gulf of Mexico at a fixed rate in excess of the Platt’s U.S. Gulf Coast Index for #2 Fuel Oil. Under this agreement, the Partnership agreed to purchase all of its marine fuel requirements that occur in the areas serviced by Martin Resource Management.

Terminal Services Agreements

Diesel Fuel Terminal Services Agreement. The Partnership is a party to an agreement under which the Partnership provides terminal services to Martin Resource Management. This agreement was amended and restated as of October 27, 2004, and was set to expire in December 2006, but automatically renewed and will continue to automatically renew on a month-to-month basis until either party terminates the agreement by giving 60 days written notice. The per gallon throughput fee the Partnership charges under this agreement may be adjusted annually based on a price index.

Miscellaneous Terminal Services Agreements. The Partnership is currently party to several terminal services agreements and from time to time the Partnership may enter into other terminal service agreements for the purpose of providing terminal services to related parties. Individually, each of these agreements is immaterial but when considered in the aggregate they could be deemed material. These agreements are throughput based with a minimum volume commitment. Generally, the fees due under these agreements are adjusted annually based on a price index.

22

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

Talen's Agreements. In connection with the Talen's acquisition, three new agreements were executed, all with effective dates of December 31, 2012. Under the terms of these contracts, Talen's provides terminal services and marine transportation services to Martin Resource Management. The terminal services agreements both have five-year terms and provide a per gallon throughput rate, which may be adjusted annually based on a price index. The marine transportation agreement has an initial term of one year with automatic successive one-year renewals unless either party elects not to do so. Contract rates are based on the horsepower and capacity of the marine vessels.

Other Agreements

Cross Tolling Agreement. The Partnership is a party to an agreement with Cross, dated November 25, 2009, under which it processes crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts for Cross. The Tolling Agreement has a 22 year term which expires November 25, 2031. Under this Tolling Agreement, Martin Resource Management agreed to process a minimum of 6,500 barrels per day of crude oil at the facility at a fixed price per barrel. Any additional barrels are processed at a modified price per barrel. In addition, Martin Resource Management agreed to pay a monthly reservation fee and a periodic fuel surcharge fee based on certain parameters specified in the Tolling Agreement. All of these fees (other than the fuel surcharge) are subject to escalation annually based upon the greater of 3% or the increase in the Consumer Price Index for a specified annual period. In addition, every three years, the parties can negotiate an upward or downward adjustment in the fees subject to their mutual agreement.

Sulfuric Acid Sales Agency Agreement. The Partnership is party to an agreement dated August 1, 2008 under which Martin Resource Management purchases and markets the sulfuric acid produced by the Partnership’s sulfuric acid production plant at Plainview, Texas, that is not consumed by the Partnership’s internal operations. This agreement, as amended, will remain in place until the Partnership terminates it by providing 180 days’ written notice. Under this agreement, the Partnership sells all of its excess sulfuric acid to Martin Resource Management. Martin Resource Management then markets such acid to third-parties and the Partnership shares in the profit of Martin Resource Management’s sales of the excess acid to such third parties.

Other Miscellaneous Agreements. From time to time the Partnership enters into other miscellaneous agreements with Martin Resource Management for the provision of other services or the purchase of other goods.

The tables below summarize the related party transactions that are included in the related financial statement captions on the face of the Partnership’s Consolidated and Condensed Statements of Operations. The revenues, costs and expenses reflected in these tables are tabulations of the related party transactions that are recorded in the corresponding caption of the consolidated and condensed financial statement and do not reflect a statement of profits and losses for related party transactions.

The impact of related party revenues from sales of products and services is reflected in the consolidated and condensed financial statement as follows:

Three Months Ended March 31,

2013

2012

Revenues:

Terminalling and storage

$

17,328

$

15,275

Marine transportation

6,843

4,857

Product sales:

Natural gas services

9

75

Sulfur services

1,133

1,716

Terminalling and storage

67

399

1,209

2,190

$

25,380

$

22,322

23

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

The impact of related party cost of products sold is reflected in the consolidated and condensed financial statement as follows:

Cost of products sold:

Natural gas services

$

8,556

$

4,315

Sulfur services

4,534

4,431

Terminalling and storage

11,961

12,649

$

25,051

$

21,395

The impact of related party operating expenses is reflected in the consolidated and condensed financial statement as follows:

Expenses:

Operating expenses

Marine transportation

$

10,058

$

6,979

Natural gas services

485

471

Sulfur services

2,355

1,318

Terminalling and storage

5,076

5,049

$

17,974

$

13,817

The impact of related party selling, general and administrative expenses is reflected in the consolidated and condensed financial statement as follows:

Selling, general and administrative:

Marine transportation

$

15

$

5

Natural gas services

579

304

Sulfur services

806

711

Terminalling and storage

361

—

Indirect overhead allocation, net of reimbursement

2,657

1,646

$

4,418

$

2,666

(12)

Income Taxes

Except as discussed below, the operations of a partnership are generally not subject to income taxes because its income is taxed directly to its partners.

The activities of the Blending and Packaging Assets prior to the acquisition by the Partnership were subject to federal and state income taxes. Accordingly, income taxes have been included in the Blending and Packaging Assets' operating results for the three months ended March 31, 2012.

Woodlawn Pipeline Co., Inc ("Woodlawn"), a former subsidiary of the Partnership, was subject to income taxes due to its corporate structure. The assets of Woodlawn were included in the Prism Assets disposed of during 2012. The entity was liquidated on December 31, 2012. Income tax expense related to Woodlawn is recorded in discontinued operations. A current state income tax expense of $0 and $2 related to Woodlawn was recorded for the three months ended March 31, 2013 and 2012 respectively.

The Partnership established deferred income taxes of $8,964 associated with book and tax basis differences of the acquired Woodlawn assets and liabilities at the date of acquisition. The basis differences related primarily to property, plant and equipment. A deferred tax benefit related to the Woodlawn basis differences of $0 and $170 was recorded for the three months ended March 31, 2013 and 2012, respectively.

24

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

Effective January 1, 2007, the Partnership became subject to the Texas margin tax, which is considered a state income tax, and is included in income tax expense on the Consolidated and Condensed Statements of Operations. The Texas margin tax restructured the state business tax by replacing the taxable capital and earned surplus components of the existing franchise tax with a new “taxable margin” component. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial. State income taxes attributable to the Texas margin tax of $307 and $267 were recorded in current income tax expense for the three months ended March 31, 2013 and 2012, respectively.

The components of income tax expense (benefit) from operations recorded for the three months ended March 31, 2013 and 2012 are as follows:

Three Months Ended March 31,

2013

2012

Current:

Federal

$

—

$

1,217

State

307

441

307

1,658

Deferred:

Federal

—

(169

)

Total income tax expense

$

307

$

1,489

Total income tax expense was allocated to continuing and discontinued operations as follows:

Income tax expense (benefit) from continuing operations:

Three Months Ended March 31,

2013

2012

Current:

Federal

$

—

$

1,217

State

307

439

307

1,656

Deferred:

Federal

—

1

Total income tax expense from continuing operations

$

307

$

1,657

Income tax expense (benefit) from discontinued operations:

Three Months Ended March 31,

2013

2012

Current:

Federal

$

—

$

—

State

—

2

—

2

Deferred:

Federal

—

(170

)

Total income tax (benefit) from discontinued operations

$

—

$

(168

)

25

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

(13)

Business Segments

The Partnership has four reportable segments: terminalling and storage, natural gas services, sulfur services and marine transportation. The Partnership’s reportable segments are strategic business units that offer different products and services. The operating income of these segments is reviewed by the chief operating decision maker to assess performance and make business decisions.

The accounting policies of the operating segments are the same as those described in Note 2 in the Partnership’s annual report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 4, 2013. The Partnership evaluates the performance of its reportable segments based on operating income. There is no allocation of administrative expenses or interest expense.

The natural gas services segment information below excludes the discontinued operations of the Prism Assets for all periods. See Note 4.

Operating Revenues

Intersegment Revenues Eliminations

Operating Revenues after Eliminations

Depreciation and Amortization

Operating Income (loss) after eliminations

Capital Expenditures

Three Months Ended March 31, 2013

Terminalling and storage

$

80,353

$

(1,141

)

$

79,212

$

7,096

$

9,983

$

14,049

Natural gas services

259,439

—

259,439

292

8,462

115

Sulfur services

70,385

—

70,385

1,966

9,344

201

Marine transportation

25,232

(582

)

24,650

2,539

2,539

350

Indirect selling, general and administrative

—

—

—

—

(3,943

)

—

Total

$

435,409

$

(1,723

)

$

433,686

$

11,893

$

26,385

$

14,715

Three Months Ended March 31, 2012

Terminalling and storage

$

81,976

$

(1,175

)

$

80,801

$

4,976

$

6,779

$

24,324

Natural gas services

172,111

—

172,111

143

3,220

14

Sulfur services

74,552

—

74,552

1,793

13,627

989

Marine transportation

21,567

(705

)

20,862

3,041

(1,427

)

5,708

Indirect selling, general and administrative

—

—

—

—

(2,418

)

—

Total

$

350,206

$

(1,880

)

$

348,326

$

9,953

$

19,781

$

31,035

The Partnership's assets by reportable segment, which exclude assets held for sale of $1,251 and $3,578, respectively, as of March 31, 2013 and December 31, 2012, are as follows:

March 31, 2013

December 31, 2012

Total assets:

Terminalling and storage

$

384,759

$

376,330

Natural gas services

314,330

331,064

Sulfur services

172,267

155,639

Marine transportation

165,009

149,963

Total assets

$

1,036,365

$

1,012,996

26

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

(14)

Unit Based Awards

The Partnership recognizes compensation cost related to stock-based awards to employees in its consolidated financial statements in accordance with certain provisions of ASC 718. The Partnership recognizes compensation costs related to stock-based awards to directors under certain provisions of FASB ASC 505-50-55 related to equity-based payments to non-employees. Amounts recognized in selling, general, and administrative expense in the consolidated and condensed financial statements with respect to these plans are as follows:

Three Months Ended March 31,

2013

2012

Employees

$

195

$

21

Non-employee directors

61

35

Total unit-based compensation expense

$

256

$

56

Long-Term Incentive Plans

The Partnership's general partner has a long term incentive plan for employees and directors of the general partner and its affiliates who perform services for the Partnership.

The plan consists of two components, restricted units and unit options. The plan currently permits the grant of awards covering an aggregate of 725,000 common units, 241,667 of which may be awarded in the form of restricted units and 483,333 of which may be awarded in the form of unit options. The plan is administered by the Compensation Committee of the general partner’s board of directors.

Restricted Units. A restricted unit is a unit that is granted to grantees with certain vesting restrictions. Once these restrictions lapse, the grantee is entitled to full ownership of the unit without restrictions. In addition, the restricted units will vest upon a change of control of the Partnership, the general partner or Martin Resource Management or if the general partner ceases to be an affiliate of Martin Resource Management. The Partnership intends the issuance of the common units upon vesting of the restricted units under the plan to serve as a means of incentive compensation for performance and not primarily as an opportunity to participate in the equity appreciation of the common units. Therefore, plan participants will not pay any consideration for the common units they receive, and the Partnership will receive no remuneration for the units. The restricted units issued to directors generally vest in equal annual installments over a four-year period. Restricted units issued to employees generally cliff vest after three years of service.

The restricted units are valued at their fair value at the date of grant which is equal to the market value of common units on such date. A summary of the restricted unit activity for the quarter ended March 31, 2013 is provided below:

Number of Units

Weighted Average Grant-Date Fair Value Per Unit

Non-vested, beginning of period

13,248

$

37.33

Granted

57,750

$

31.06

Vested

(4,500

)

$

37.27

Forfeited

—

—

Non-Vested, end of period

66,498

$

31.89

Aggregate intrinsic value, end of period

$

2,562

A summary of the restricted units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the three months ended March 31, 2013 and 2012 are provided below:

27

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS

(Dollars in thousands, except where otherwise indicated)

March 31, 2013

(Unaudited)

Three Months Ended March 31,

2013

2012

Aggregate intrinsic value of units vested

$

153

$

203

Fair value of units vested

$

168

$

209

As of March 31, 2013, there was $1,957 of unrecognized compensation cost related to non-vested restricted units. That cost is expected to be recognized over a weighted-average period of 2.66 years.

Unit Options. The plan currently permits the grant of options covering common units. As of May 6, 2013, we have not granted any common unit options to directors or employees of the Partnership's general partner, or its affiliates. In the future, the Compensation Committee may determine to make grants under the plan to employees and directors containing such terms as the Compensation Committee shall determine. Unit options will have an exercise price that, in the discretion of the committee, may not be less than the fair market value of the units on the date of grant. In addition, the unit options will become exercisable upon a change in control of the Partnership's general partner, Martin Resource Management or if the general partner ceases to be an affiliate of Martin Resource Management or upon the achievement of specified financial objectives.

(15)

Condensed Consolidating Financial Information

Martin Operating Partnership L.P. (the “Operating Partnership”), the Partnership’s wholly-owned subsidiary, has issued in the past, and may issue in the future, unconditional guarantees of senior or subordinated debt securities of the Partnership in the event that the Partnership issues such securities from time to time. If issued, the guarantees will be full, irrevocable and unconditional. In addition, the Operating Partnership may also issue senior or subordinated debt securities which, if issued, will be fully, irrevocably and unconditionally guaranteed by the Partnership.

Since December 31, 2012, the Partnership has added Redbird and MOP Midstream Holdings, LLC as subsidiary guarantors to its outstanding senior notes and has transferred substantially all of Talen's assets to certain of the Partnership's other subsidiary guarantors. Therefore, the Partnership no longer presents condensed consolidating financial information for any non-subsidiary guarantors.

The Partnership does not provide separate financial statements of the Operating Partnership because the Partnership has no independent assets or operations, the guarantees are full and unconditional, and the other subsidiary of the Partnership is minor. There are no significant restrictions on the ability of the Partnership or the Operating Partnership to obtain funds from any of their respective subsidiaries by dividend or loan.

(16)

Commitments and Contingencies

From time to time, the Partnership is subject to various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Partnership.

(17)

Subsequent Events

Quarterly Distribution. On April 25, 2013, The Partnership declared a quarterly cash distribution of $0.775 per common unit for the first quarter of 2013, or $3.10 per common unit on an annualized basis, which will be paid on May 15, 2013 to unitholders of record as of May 8, 2013.

28

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this quarterly report on Form 10-Q to “Martin Resource Management” refers to Martin Resource Management Corporation and its subsidiaries, unless the context otherwise requires. You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated and condensed financial statements and the notes thereto included elsewhere in this quarterly report.

Forward-Looking Statements

This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements included in this quarterly report that are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto), including, without limitation, the information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements. These statements can be identified by the use of forward-looking terminology including “forecast,” “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other “forward-looking” information. We and our representatives may from time to time make other oral or written statements that are also forward-looking statements.

These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Item 1A. Risk Factors” of our Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2013, and in this report.

Overview

We are a publicly traded limited partnership with a diverse set of operations focused primarily in the United States ("U.S.") Gulf Coast region. Our four primary business lines include:

•

Terminalling and storage services for petroleum products and by-products including the refining, blending and packaging of finished lubricants;

The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, fertilizer manufacturers and other wholesale purchasers of these products. We operate primarily in the U.S. Gulf Coast region. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.

We were formed in 2002 by Martin Resource Management, a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource Management has expanded its operations through acquisitions and internal expansion initiatives as its management identified and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids. Martin Resource Management is an important supplier and customer of ours. As of March 31, 2013, Martin Resource Management owned 19.1% of our total outstanding common limited partner units. Furthermore, it owns and controls our general partner, which

29

owns a 2.0% general partner interest in us and all of our incentive distribution rights. Martin Resource Management directs our business operation through its ownership and control of our general partner.

Martin Resource Management has operated our business since 2002. Martin Resource Management began operating our natural gas services business in the 1950s and our sulfur business in the 1960s. It began our marine transportation business in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s. In recent years, Martin Resource Management has increased the size of our asset base through expansions and strategic acquisitions.

Recent Developments

We believe one of the rationales driving investment in master limited partnerships, including us, is the opportunity for distribution growth offered by the partnerships. Such distribution growth is a function of having access to liquidity in the financial markets used for incremental capital investment (development projects and acquisitions) to grow distributable cash flow.

We continually adjust our business strategy to focus on maximizing liquidity, maintaining a stable asset base which generates fee based revenues not sensitive to commodity prices, and improving profitability by increasing asset utilization and controlling costs. Over the past year, we have had access to the capital markets and have appropriate levels of liquidity and operating cash flows to adequately fund our growth. Over the next two years, we plan to increase growth capital expenditures primarily in our Terminalling and Storage and Natural Gas Services segments.

NGL Marine Equipment Purchase. On February 28, 2013, we purchased from affiliates of Florida Marine Transporters, Inc. ("Florida Marine Assets") six liquefied petroleum gas pressure barges and two commercial push boats for approximately $50.8 million. The purchase was funded with borrowings under our revolving credit facility.

Talen's Marine & Fuel LLC. On December 31, 2012, we acquired all of the outstanding membership interests in Talen's Marine & Fuel LLC (“Talen's”) from Quintana Energy Partners, L.P. for $103.4 million, subject to certain post-closing adjustments. Simultaneous with the acquisition, we sold certain working capital-related assets to Martin Energy Services LLC (“MES”), a wholly-owned subsidiary of Martin Resource Management for $56.0 million, reducing our investment in Talen's to $47.4 million. In conjunction with its purchase of certain working capital-related assets, MES entered into various service agreements with Talen's pursuant to which we provide certain terminalling and marine services to MES.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on the historical consolidated and condensed financial statements included elsewhere herein. We prepared these financial statements in conformity with generally accepted accounting principles. The preparation of these financial statements required us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Our results may differ from these estimates. Currently, we believe that our accounting policies do not require us to make estimates using assumptions about matters that are highly uncertain. Changes in these estimates could materially affect our financial position, results of operations or cash flows. Significant items that are subject to such estimates and assumptions include the amount of the allowance for doubtful accounts receivable and the determination of the fair value of our reporting units under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 related to goodwill. A discussion of our significant accounting policies we have adopted and followed in the preparation of our consolidated financial statements is included within our Annual Report on Form 10-K for the year ended December 31, 2012, and there have been no material changes to these policies through March 31, 2013.

Our Relationship with Martin Resource Management

Martin Resource Management is engaged in the following principal business activities:

•

providing land transportation of various liquids using a fleet of trucks and road vehicles and road trailers;

We are and will continue to be closely affiliated with Martin Resource Management as a result of the following relationships.

Ownership

Martin Resource Management owns an approximate 19.1% limited partnership interest and a 2% general partnership interest in us and all of our incentive distribution rights.

Management

Martin Resource Management directs our business operations through its ownership and control of our general partner. We benefit from our relationship with Martin Resource Management through access to a significant pool of management expertise and established relationships throughout the energy industry. We do not have employees. Martin Resource Management employees are responsible for conducting our business and operating our assets on our behalf.

Related Party Agreements

The omnibus agreement with Martin Resource Management requires us to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business. We reimbursed Martin Resource Management for $44.8 million of direct costs and expenses for the three months ended March 31, 2013 compared to $36.2 million for the three months ended March 31, 2012. There is no monetary limitation on the amount we are required to reimburse Martin Resource Management for direct expenses.

In addition to the direct expenses, under the omnibus agreement, we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. For the three months ended March 31, 2013 and 2012, the Conflicts Committee of our general partner approved reimbursement amounts of $2.7 and $1.6 million, respectively, reflecting our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. These indirect expenses covered the centralized corporate functions Martin Resource Management provides for us, such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions we share with Martin Resource Management’s retained businesses. The Omnibus Agreement also contains significant non-compete provisions and indemnity obligations. Martin Resource Management also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.

The agreements include, but are not limited to, motor carrier agreements, marine transportation agreements, terminal services agreements, a tolling agreement, a sulfuric acid agreement, and various other miscellaneous agreements.

Pursuant to the terms of the omnibus agreement, we are prohibited from entering into certain material agreements with Martin Resource Management without the approval of the Conflicts Committee of our general partner’s board of directors.

31

For a more comprehensive discussion concerning the omnibus agreement and the other agreements that we have entered into with Martin Resource Management, please refer to “Item 13. Certain Relationships and Related Transactions – Agreements” set forth in our annual report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 4, 2013.

Commercial

We have been and anticipate that we will continue to be both a significant customer and supplier of products and services offered by Martin Resource Management. Our motor carrier agreement with Martin Resource Management provides us with access to Martin Resource Management’s fleet of road vehicles and road trailers to provide land transportation in the areas served by Martin Resource Management. Our ability to utilize Martin Resource Management’s land transportation operations is currently a key component of our integrated distribution network.

We also use the underground storage facilities owned by Martin Resource Management in our natural gas services operations. We lease an underground storage facility from Martin Resource Management in Arcadia, Louisiana with a storage capacity of 2.2 million barrels. Our use of this storage facility gives us greater flexibility in our operations by allowing us to store a sufficient supply of product during times of decreased demand for use when demand increases.

In the aggregate, our purchases of land transportation services, NGL storage services, lube oil product purchases and sulfur services payroll reimbursements from Martin Resource Management accounted for approximately 7% and 8% of our total cost of products sold during the three months ended March 31, 2013 and 2012, respectively. We also purchase marine fuel from Martin Resource Management, which we account for as an operating expense.

Correspondingly, Martin Resource Management is one of our significant customers. It primarily uses our terminalling, marine transportation and NGL distribution services for its operations. We provide terminalling and storage services under a terminal services agreement. We provide marine transportation servi